MODULE 8:

Entrepreneurial Accounting
and Financial Management
Statements of Financial Position
Statements of Income
Statements of Changes in Equity
Statements of Cash Flows
 Commonly Used Ratios
1 Current ratio

2 Quick asset ratio

3 Debt to equity ratio

4 Return on equity

5 Net profit margin

Liquidity Ratio

a. Current ratio = Current assets

Current liabilities

 Estimates the ability of the company to pay back

short-term obligations

A quick rule of thumb is that a business entity

should have a current ratio of 2:1; however,
many successful business entities run well at 1:1
Liquidity Ratio

b. Quick asset ratio = Quick assets

Current liabilities

Quick Assets are assets that can be converted

to Cash quickly: Cash, Accounts Receivable,
Marketable Securities

 This is a more conservative measure of the

business entity’s ability to pay short-term
obligations; a ratio of 1:1 is usually adequate
Debt Management (Leverage)
Ratios

Debt to Equity Ratio = Total Liabilities

Owner’s Equity

 Indicates the proportion of equity and debt used by

the company to finance its assets
Profitability Ratio
Return on Ordinary Equity (ROE)

= Net Income
Total Equity

 Measures the amount of profit generated by

the company with the money invested by
shareholders
Profitability Ratio
Net Profit Margin

= Net Income
Sales

 It indicates the company’s efficiency in converting

its revenue into actual profit.
Using the financial statements of ABC Corporation which
were previously presented, please compute for:
 Current ratios as at December 31, 2018 and 2017
 Quick asset ratios as at December 31, 2018 and 2017
 Debt to equity ratios as at December 31, 2018 and 2017
 Return on ordinary equity for 2018 and 2017
 Net profit margin for 2018 and 2017
 Prepare a 3-year projected income statement for Mang Pedro using the following data:
First year Other information

10% increase in volume every year;

Mark-up is at 40% of total material costs;
5% increase in selling price on the 2nd
Sales initial volume of sales is at 10,000 per
year only (third year no increase in
month
SP)

6% and 8% inflation rate on the 2nd

Raw material costs Php35 per unit
and 3rd year

Increase in minimum wage has

Production worker wages At Php6/piece resulted to a 5% increase on the 3rd
year

Due to attendance in KMME, you

Bookkeeper salary Php15,000 per month decided to do the bookkeeping work
starting in October of the 2nd year

Rental of building (90% used in As per contract, 5% escalation every

Php8,000 per month
factory; 10% used in office) year

6% and 8% inflation rate on the 2nd

Packaging costs of materials Php5 per unit
and 3rd year

Electricity (90% used in factory; Increase by 1% for every 2,000

Php4,000 per month
10% used in office) increase in volume

Increase in minimum wage by 3% on

Janitor salary Php5,000 per month
the 3rd year